The government has included online advertisements in the tax net with a proposal to impose an equalisation levy cess of 6 per cent on services pertaining to cross-border digital transactions.
This involves global advertising and marketing companies doing business from India.
Nicknamed the 'Google tax', it means that online advertisers and digital media services companies which don't have a permanent establishment in India will have to pay this tax.
A new chapter on 'equalisation levy' to be included in the Finance Bill will provide for a levy of 6 per cent on "specified services received or receivable by a non-resident not having permanent establishment (PE) in India, from a resident in India who carries out business or profession, or from a non-resident having permanent establishment in India".
As per the BEPS action plan, OECD has recommended to impose a final withholding tax on certain payments for digital goods or services provided by a foreign ecommerce provider or imposition of a equalisation levy on consideration for certain digital transactions.
In order to reduce burden of small players in the digital domain, the memorandum to the Finance Bill said no such levy would imposed if the aggregate amount of consideration does not exceed Rs1 lakh in any previous year.
With a view to provide for the administrative mechanism of the equalisation levy, it is proposed to provide for statutory authorities and also prescribes the duties and powers of the authorities to administer the equalisation levy.
"In order to ensure effective compliance, it also proposes to provide for interest; penalty and prosecution in case of defaults with sufficient safeguards," the memorandum said.
To avoid double taxation, government proposes to provide exemption for any income arising from providing specified services on which equalisation levy is chargeable.
The digital economy is growing at ten per cent per year, significantly faster than the global economy as a whole.
In the Budget speech, Finance Minister Arun Jaitley said that in order to meet with the commitment to BEPS initiative of OECD and G20, the Finance Bill, 2016 includes provision for requirement of country by country reporting for companies with a consolidated revenue of more than €750 million.
For implementing the country by country (CbC) reporting and master file submission in relation to OECD report on BEPS action plan Action 13, which is the minimum standard to be followed by every member/partner country, government proposes to provide for furnishing of documents by the specified person.
"It is also proposed to provide for penal consequence in case of non-compliance by such person," Jaitley said.